Gogo (GOGO) Q2 Earnings: Is Disappointment in the Cards?

Gogo Inc.GOGO is set to report second-quarter 2018 results on Aug 8.

The company lagged the Zacks Consensus Estimate in three of the trailing four quarters but delivered an average positive surprise of 2.00%.

In the last reported quarter, the company posted a loss of 34 cents per share, narrower than the Zacks Consensus Estimate of a loss of 59 cents as well as the year-ago quarter's loss of 52 cents.

However, revenues beat the consensus mark in the trailing four quarters. In the last reported quarter, revenues increased 40.6% year over year to $232 million, which comfortably surpassed the Zacks Consensus Estimate of $201 million.

The Zacks Consensus Estimate for second-quarter earnings and revenues is pegged at a loss of 74 cents per share and $208.6 million, respectively.

Let's see how things are shaping up for this announcement.

Key Factors to Consider

Notably, Gogo shares have lost 66.7% year to date. However, the industry returned 9.5% over the same period.

The underperformance can be attributed to Gogo's inability to deliver profits despite operating in a sector (in-flight connectivity) that presents significant growth opportunities.

Gogo's 2Ku service has been the primary top-line growth driver. Increasing bandwidth through installation of more 2Ku aircraft online is expected to boost take rates, drive top-line growth and improve profitability.

With the introduction of AVANCE L5 and L3, Gogo anticipates to expand its market share in the business aviation segment. Notably, the company has already installed 100 AVANCE L5 systems, within six months of availability.

In the last reported quarter, Gogo announced that Aeromexico and Air Canada will install 2Ku on an additional 50 aircrafts, which also includes Air Canada's Bombardier CS300.

However, higher operating expenses due to increase in investment in engineering, design and development as well as sales and marketing pose concerns. Additionally, Gogo's unprofitable IFC contracts coupled with heavy capital expenditure spending requirements is resulting in higher debt levels and an unprofitable bottom line.

Moreover, Gogo's Commercial Aviation North America (CA-NA) segment is likely to take a hit in second-quarter 2018 with the recent ban and reversal on ZTE, which is the major supplier of Next generation air-to-ground (ATG) systems used in CA-NA. The company plans to replace these ATG aircrafts with satellite-based ones. However, the newly installed aircrafts will have lower ARPUs compared with the de-installed ones, which is a headwind.

Gogo Inc. Price and EPS Surprise

Gogo Inc. Price and EPS Surprise | Gogo Inc. Quote

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP . The Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

Gogo has a Zacks Rank #3 and an Earnings ESP of -4.91%. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Stocks That Warrant a Look

Here are stocks that you may want to consider as our model shows that these have the right combination of elements to deliver an earnings beat in their upcoming release.

Vishay Intertechnology VSH has an Earnings ESP of +2.41% and a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here.

Avnet AVT has an Earnings ESP of +1.37% and a Zacks Rank #2.

CyberArk Software CYBR has an Earnings ESP of +3.38% and a Zacks Rank #3.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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